This
appeal is preferred against the Judgment of a Full Bench of the Kerala High
Court. The matter arises under the Kerala Sales Tax Act and the relevant
assessment year is 1965-66. The appellant is a dealer in motor vehicles and
automobile parts. The question herein, however, is confined to motor-trucks.
The appellant sells trucks both by way of direct sale and also on the basis of
hire-purchase. We are concerned with the sales effected on hire-purchase basis.

According
to the hire-purchase agreement entered into between the appellant and the
hirer, the period of hire is two years. The agreement stipulates that the
entire consideration specified under the said agreement shall be paid within
the said period of two years and that, at the end of that period, the hirer shall
become the owner.

In the
course of assessment proceedings, the question - how to value the vehicles and
with reference to which date - arose. The matter was brought to this Court in
19 S.T.C.80. This Court held that the hire-purchase agreement comprises two
elements

(1) the
element of bailment and

(2) the
element of sale in the sense that it contemplates an evential sale. lt was held
that element of sale in the transaction fructifies when the option is exercised
by the intending purchaser after fulfilling the terms of the agreement. When
all the terms of agreement are satisfied and the option is exercised, it was
held, sale takes place of the goods which till then have been hired. Only when
the sales take place, it was held further, it will attract the sales tax.

In an
earlier decision of this Court in K.L.Johar & Co. v. Deputy Commercial Tax
Officer, Coimbatore (16 S.T.C.213), it has been held that in the matter of
determining the consideration for sale, two courses are open to the Revenue,
viz., (a) to take the original price of the goods and deduct the appropriate
amount of depreciation out of it or (2) to take the market-value of the goods
on the date of the sale.

Applying
the aforesaid principles, the Sales Tax Officer proposed to adopt first of the
above two methods of valuation. In other words, he wanted to take the original
sale price from which he proposed to deduct the amount of depreciation. But
this, in turn, gave rise to another controversy, viz., rate of depreciation.
The Sales Tax Officer proposed to adopt the rate of twelve percent depreciation
per annum. Yet another question before the Sales Tax Officer was whether the
sale should be deemed to have taken place at the end of the period stipulated
in the agreement or on the date when the hirer actually exercised the option to
purchase after paying the full price. The appellant's case was not only that he
was entitled to a higher rate of depreciation but also that wherever the period
of hire-purchase has been extended by agreement between the parties, the
extended period should be taken into consideration and the depreciation worked
out for that entire periods i.e., upto the date the hirer exercised the option
to purchase. According to the assessee, the sale did not come about
automatically at the end of the period stipulated in the agreement but only
when the hirer exercised the option after paying the full amount due, whether
within the period stipulated in the agreement or the extended period, as the
case may be. The Sales Tax Officer rejected both the contentions of the
appellant. He adopted twelve percent per annum as the rate of depreciation. He
also refused to look into the question, whether and in how many cases, was
there an extension of the period of hire-purchase. He simply took the period
stipulated in the agreement as final and treated the last date of the said
period as the date of sale. The appellant questioned the order of assessment
directly by way of a writ petition in the kerala High Court. The learned Single
Judge allowed the writ petition holding (a) that so far as the rate of
depreciation is concerned, the authority must examine the matter over again and
(2) that the Sales Tax Officer was in error in treating the period of agreement
as the only relevant period and in ignoring the extensions granted by the
appellant. Following the decision of this Court in K.L.Johar & Co., the
learned Single Judge held that the sale comes about when the hirer exercises
the option and not automatically at the end of the period stipulated in the agreement.
He accordingly remitted the matter to the Sales Tax Officer for making the
assessment in accordance with the judgment.

The
Revenue filed an appeal. The matter was referred to a Full Bench. On the
question of rate of depreciation, the Full Bench held that no material was
placed by the appellant before the Court to hold that the rate actually adopted
by the assessing officer was not reasonable. With respect to the other
question, the Full Bench declined to express itself. It only held that the appellant
has failed to prove, as a fact, that there were extensions. Once there is no
such proof, the Full Bench opined, it was unnecessary for them to go into the
question whether the Sales Tax Officer was right in holding that the sale comes
about automatically at the end of the agreement period irrespective of any
other factors. The said view is questioned in this appeal.

Before
proceeding further, we may mention a fact which is relevant. Pursuant to the
judgment of the learned Single Judge, the Sales Tax Officer made an assessment
which is dated July 16,
1976. [We are told
that there was no stay pending the writ appeal.] A copy of the said order is
placed before us. The assessment order shows that the Sales Tax Officer has
accepted the extended period wherever there was extension. lt also appears that
in some cases, the full payment was made even prior to the stipulated period
and the hirer exercised the option to purchase. In those cases, the actual
period was taken as the basis and the sale was held to have taken place at the
end of such period. Now, it must be remembered that on the first occasion, the
Sales Tax Officer did not find as a fact that there were no extensions as
averred by the assessee. He refused to go into that aspect because of his
opinion that it was irrelevant. The material was before him. Now, that we have
held that the said fact is relevant, the factual aspect becomes relevant and
for that purpose we have looked into the subsequent assessment order dated July 16, 1976. If so, the basis upon which the
Full Bench has held against the assessee [insofar as the question - when does
the sale take place] must be held to have become untenable.

Now,
coming to the principle applicable in this behalf, we may reiterate the law
enunciated by this Court in K.L.Johar's case [supra], viz., that coming into
being of the sale is a question of fact and that it takes place when the hirer
exercises the option. lt cannot be said that merely because the hire-purchase
agreement stipulates a particular period for the total payment of the
consideration and for the purchaser to exercise the option to purchase at the
end of the said period, the sale does not take place at the end of that period
willy-nilly. There may be cases where the hirer may default in paying the amount
within the stipulated period, he may ask for extension and the dealer may grant
the extension. In such cases, the sale obviously takes place only when the
purchaser exercises the option to purchase after fully paying the agreed
amount. In this view of the matter and also in view of the findings of fact
affirmed in the assessment order dated July 16, 1976, the order of the Full Bench is
liable to be set aside on this issue. We affirm the order of assessment dated July 16, 1976 on this issue.

The
next question pertains to the rate of depreciation.

The
assessment order dated July
16, 1976 has again
adopted the rate of twelve percent per annum. Sri Poti, learned counsel, says
that this figure is arbitrary and that the authorities have not explained the
basis upon which the said figure has been arrived at. He says that under the
income Tax Act, where the trucks are held for running on hire, the rate of
depreciation is forty percent. He says that this factor should have been kept
in mind in determining the rate of depreciation. As stated above, the Full
Bench has opined that the appellant has failed to place any material showing
that the said rate was arbitrary. It has also refused to take into
consideration the rate of depreciation fixed by the Income Tax Act on the
ground that that is a different enactment and that the rate prescribed therein
is for the purposes of that Act. Be that as it may, since the appellant has a
right of appeal against assessment order, we do not wish to either into this
question. It was open to the assessee to challenge the said finding in the
appeal which may have been filed by him against the order of assessment. lt is
made clear that in case, the assessee has not filed the appeal against the
order dated July 16,
1976, he may be permitted
to file such an appeal now. If the appeal against the assessment order dated July 16, 1976 is filed within one month from todays
the same shall be treated as filed within time and shall be disposed of
accordingly. If, however, he has already filed the appeal, this direction shall
not operate.

There
is another minor question arising herein. That relates to rebate. The question
is whether the amount of rebate should have been excluded from the turn-over.
Having regard to the smallness of the Amount involved, we express no opinion on
this aspect and leave the question open.

In the
circumstances, this appeal is disposed of with the above directions. The
judgment of the full Bench shall be deemed to have been set aside to the extent
it runs contrary to the judgment.

The
question for decision is : Whether for the purchase of sugar-cane from tho cane
growers, a purchaser is liable to pay purchase tax under the State Sales Tax
Act on the amount paid by the purchaser to the cane grower over and above the
price fixed under Clauses 3 and 5-A of the Sugar cane (Control) Order, 1966 ?
Clause 3 of the Control Order issued under the Essential Commodities Act, 1955
empowers the Central Government to fix the minimum price for sugar-cane for
each season and different prices are permitted to be fixed for different areas
or different quantities or varieties of sugar-cane. Since 1.10.1974 pursuant to
the acceptance of Bhargava Commission Report, the Central Government introduced
Clause 5-A in the Sugar-cane (Control) Order, 1966, the material part of which
is as under ;

"5-A.
ADDITIONAL PRICE FOR SUGARCANE PURCHASED ON OR AFTER 1ST OCTOBER, 1974 (1)
Where a producer of sugar or his agent purchases sugarcane, from a sugarcane
grower during each sugar year, he shall, in addition to the minimum sugarcane
price fixed under clause (3) pay to the sugarcane grower an additional price,
if found due in accordance with the provisions of the Second Schedule annexed
to this Order.

(2)
The Central Government or the State Government, as the case may be, may authorise
any person or authority, as it thinks fit, for tho purpose of determining the
additional price payable by a producer of sugar under sub-clause (1) and the
person or authority, as the case may be, who determines the additional price,
shall intimate the same in writing to the producer of sugar and sugarcane
grower connected with the supply of sugarcane to such Producer of sugar.

xxx xxx
xxx In Tamil Nadu, the State Government duly exercised its power by appointing
the Director of Sugar and Cane Commissioner, who, by order dated 2.7.1983
determined the "additional cane price" under Clause 5-A at Rs.28.15
per MT for the respondent i.e. Thiru Arroran Sugars Ltd., making the final
statutory cane price as per the Control Order at Rs.179.55 per MT, the
"minimum cane price" fixed by the Central Government being Rs.151.40 por
MT. There is no dispute that this additional price fixed under Clause 5-A
attracts purchase tax which has already been paid. However, the dispute is with
regard to the claim of the State Government for payment of purchase tax on the
excess amount paid by the purchaser in addition to the aggregate of the minimum
cano price fixed under Clause 3 and the additional cane price fixed under
Clause 5-A by the Central Government.

The
occasion for payment by the purchaser of the amount in excess of the aggregate
of the minimum cane price and the additional cane price so fixed, arises on
account of an Order of the State Government dated 15.11.1980 purporting to fix
a higher revised minimum cane price and directing the sugar factories in Tamil Nadu
to pay that price to the cane growers. Pursuant to the direction, each sugar
factory was directed to make that payment and in compliance thereof this sugar
factory paid the excess amount as an "Advance" described as under :

"Being
advance payment towards cane supply during 1980-81 Season, against probable
additional cane price under Section 5A of the Sugarcane (Control) Order,
1966." This amount paid as "advance" by the sugar factory for
purchase of sugar-cane in anticipation of fixation of the additional cane price
under Clause 5-A was Rs.52.40 per MT Accordingly, on fixation of the additional
cane price at Rs.28.15 per MT, the excess amount of advance came to (Rs.52.40
per MT minus Rs.28.15 per MT) Rs 24.25 per MT.

While
the sugar factory claims that this excess amount of Rs.24.25 per MT paid by it
to the cane grower is towards advance and liable to adjustment or refund, even
if it remains with the cane grower, it cannot form part of the price of
sugar-cane which cannot exceed the aggregate of the minimum cane price fixed
under clause 3 and the additional cane price fixed under Clause 5-A. This is
the common stand of all sugar factories, as purchasers of sugarcane from the
growers.

The
purchasers filed writ petitions challenging the demand by the State Government
of purchase tax on the above excess amount of Rs.24.25 per MT. They contested
the demand on the ground that it could not form a part of the sale price of
cane sugar which had been statutorily fixed under. Clauses 3 and 5-A of the
Control Order. The Madras High Court rejected the contention of the State
Government and allowed the writ petitions of the assessees. Hence, these
appeals by way of special leave by the State of Tamil Nadu.

On a
perusal of the relevant provisions of the Sugar- cane (Control) Order, 1966,
particularly Clauses 3 and 5-A therein, it is clear that the total price of
sugar-cane fixed thereunder is the aggregate of the minimum cane price fixed
under Clause 3 and the additional cane price fixed under Clause 5-A. Thus,
unless there be an agreement between the grower and the purchaser for purchase
of the sugar-cane at a higher price, the obligation of the purchaser is to pay
to the grower only the aggregate of the amounts fixed under Clauses 3 and 5-A.
In other words, under the Statute there is no liability of the purchaser to pay
to the grower any amount in excess of this aggregate amount. Thus, without any
contractual or statutory basis fixing the sale price of sugar-cane at an amount
higher than the minimum cane price fixed under Clause 3 and the additional cane
Price fixed under Clause 5-A, any sum paid by the purchaser to the grower as
advance prior to fixation of the additional cane price under Clause 5-A cannot
form part of the price of cane sugar.

In
these matters there is admittedly no statutory basis since the 'State advice'
to the purchasers to pay a certain amount in addition to the minimum cane price
fixed under Clause 3, in anticipation of fixation of the additional cane price
under Clause 5-A, does not have any statutory basis.

The
amount paid as advance under the State advice also does not have any
contractual basis since this was not paid as a result of an agreement between
the grower and the purchaser.

The
amount of advance was paid in anticipation of fixation of the additional cane
price under Clause 5-A which means that in case the fixation under Clause 5-A
was at a higher amount than the amount paid as advance then the purchaser would
have to pay the deficit amount. Similarly, when the amount of advance was in
excess, the purchaser would be entitled to refund of the excess amount,
irrespective of the fact whether the refund was actually made or not. For the
purpose of determining the price of sugar-cane for computation of the purchase
tax, the only significant amount is the aggregate of the minimum price fixed
under Clause 3 and the additional cane price fixed under Clause 5-A, unless a
higher price is paid to the grower by agreement between the purchaser and
grower.

It was
argued by learned counsel for the State that the higher price inclusive of the
excess amount included in the advance paid on State advice is deemed to have
been paid by an agreement between the grower and the purchaser and, therefore,
the entire amount would be the price of sugar- cane. This is a question of fact
in each case. It is true that if in a given case it is found as a fact on the
basis of evidence that the purchaser had agreed with the grower to pay the
higher price described as 'advance' including the amount in excess of the
additional price fixed under Clause 5-A then in that case the entire amount
would be the price of sugar-cane. However, there is no such basis found in the
present case wherein the excess amount forming part of the advance was paid
only under compulsion on the direction contained in the 'State advice'. It is
significant that a provision for adjustment is clearly made in sub-clause (6)
of Clause 5-A. This provision supports the view we have taken. The decision of
the Madras High Court which is Tax Officer Mannargudi & Ors., 1988 (71) STC
444 is, therefore, upheld and the appeals against the decision of the Madras
High Court are, therefore, dismissed.

In the
connected matters arising out of the judgment of the Karnataka High Court,
similar writ petitions filed by the purchasers of sugar-cane were dismissed.
The two decisions of the Karnataka High Court which require reference are Pandavapura
Sahakara Sakkare Kharkhane (P) Ltd. v. State of Mysore, 1973 (32) STC 104 and Tungabhadra
Sugar Works Ltd. v. State of Karnataka & Ors., 1994 (93) STC 561. In Pandavapura
it was found proved as a fact that the substance of the transaction between the
purchaser and the cane growers was for payment of the enhanced price for the
sugar-cane supplied and the amount paid in excess of the statutory price was
paid under the contract and not either as ex-gratia payment or towards advance.
In that situation the entire amount paid was treated as the price. In our
opinion, the nature of contract in that case being such, the entire amount paid
had to be treated as price of the sugar- cane supplied since the Statute does
not prohibit an agreement between the grower and the purchaser for payment of a
higher price for the sugar-cane by the purchaser. In the later decision in Tungabhadra
also it is noticed that there is no prohibition against the parties agreeing
for the payment of a higher price of the sugar-cane. In that situation no doubt
the entire amount paid has to be treated as the price of the sugar-cane.
However, as indicated earlier, for treating the entire amount paid by the
purchaser as the price of sugar-cane supplied, it must be found proved as a
fact that the higher price including the excess amount was paid as the price of
sugar-cane under an agreement between the grower and the purchaser irrespective
of a lower amount being fixed as the aggregate of the price fixation under
Clauses 3 and 5-A of the Control Order.

Unless
a clear finding to that effect is recorded, the amount paid by the purchaser in
excess of the aggregate of the minimum price fixed under Clause 3 and the
additional price fixed under Clause 5-A, as a part of the amount paid as
advance prior to fixation of the additional price under Clause 5-A, cannot be
treated automatically as a part of the total price of sugarcane. In matters
arising out of decisions of the Karnataka High Court, this aspect has not been
adverted to and the writ petitions have been dismissed without going into this
question. The Karnataka matters have, therefore, to be remitted to the High
Court for a fresh decision on the above basis.

As a
result of the aforesaid decision, the appeals of the State of Tamil Nadu (Civil Appeal Nos. 10733-10735,
11083-11141, 11211, 11212 and 11213 of 1995) against the judgment of the Madras
High Court are dismissed. The appeals against the decision of the Karnataka
High Court by the sugar factories (Civil Appeal Nos. 11605-11608 and 11214 of
1995) are allowed. The matters are remitted to the Karnataka High Court for a
fresh decision in accordance with law in the manner indicated after hearing
both sides.